My First Deal
Happy New Year. I am finalizing the paper work for my LLC and have a property in sight in my neighborhood. I am trying to get a private investor vs. a hard money lender. I recently read on BP the information about "financial analysis". From experience do private investors charge interest on the loan or prefer to take a percentage of the net profit for it to be considered a good investment. For example, if the investor funds 80% of the deal and charges 6% interest on the loan amount this would yield less money in the total return of their investment with a flipped property (given you flip in 60days) versus if they want 10% of the net profits. For example 80% loan on $100000. Property is flipped and resold for $150000. Brokers fee is 4% ($6000), Investor gets 88800 (loan and interest), closing cost perhaps is $20000. If I spent $10000 to rehab and $20000 for the down payment using the Cap Rate formula NOI/Property Price= $35200/136800=25.7%. If the investor wanted 10% of the NOI they would yield a profit of $3520 vs. $800 only on the loan interest. Or perhaps I am mistaken that the investor would not do a 6% interest rate on a 12month scale but rather charge 6% off the top? Please assist in responding to what is the normal trend. Thanks